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Stock Splits as a Manipulation Tool: Evidence from Mergers and Acquisitions

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  • Shourun Guo
  • Mark H. Liu
  • Weihong Song

Abstract

"We document that acquiring firms are more likely than nonacquiring firms to split their stocks before making acquisition announcements, especially when acquisitions are financed by stock and when the deals are large. Our findings support the hypothesis that some acquiring firms use stock splits to manipulate their equity values prior to acquisition announcements. Using earnings quality as a proxy for firms' intention to manipulate, we find that acquirers with low earnings quality (i.e., acquirers that are more likely to use stock splits to manipulate their stock values) have lower long-run stock returns compared with their benchmarks, especially when the deals are financed with stock. In contrast, acquirers with high earnings quality do not show that pattern. Our evidence complements and extends the findings in the literature that some acquirers manipulate their stock prices before stock-swap acquisitions. This study suggests that target shareholders should use information such as earnings quality and stock splits to discriminate among acquirers and ensure that exchanges are conducted on fair terms." Copyright (c) 2008 Financial Management Association International..

Suggested Citation

  • Shourun Guo & Mark H. Liu & Weihong Song, 2008. "Stock Splits as a Manipulation Tool: Evidence from Mergers and Acquisitions," Financial Management, Financial Management Association International, vol. 37(4), pages 695-712, December.
  • Handle: RePEc:bla:finmgt:v:37:y:2008:i:4:p:695-712
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    Cited by:

    1. Ghribi Rihab & Jarboui Anis, 2016. "Impact of accounting and financial manipulations around mergers and acquisitions on shareholders' perception," Post-Print hal-01371223, HAL.
    2. Yagüe, José & Gómez-Sala, J. Carlos & Poveda-Fuentes, Francisco, 2009. "Stock split size, signaling and earnings management: Evidence from the Spanish market," Global Finance Journal, Elsevier, vol. 20(1), pages 31-47.
    3. repec:eee:reveco:v:51:y:2017:i:c:p:574-598 is not listed on IDEAS

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